Russia and China - Contrasts

By



Why has the political and economic development of Russia since 1991 been so different than that of China? 

Russia – political collapse of Communism and the Communist Party.
China – Communist Party keeps political control after brutally suppressing
              demonstrations in Tiananmen Square.

Russia – loses Eastern Europe and much of old Russian Empire, creating
                economic disruption and political enemies on borders.
China – keeps territorial boundaries.

Russia – slow to reform agriculture.
China – starts reforming agriculture in 1970s.  Increases food production and
              income of farmers.

Russia – tries to move quickly to democracy.  Ends up with disappointment
               and authoritarian government.  Does not tolerate internal dissent. 
China – no free elections.  Does not tolerate internal dissent.

Russia – attempts quick transition to capitalism.  Ends up with corrupt
               combination of government bureaucrats and oligarchs.
China – phased transition to state-directed capitalism.  Creates large new
               entrepreneurial and professional middle class.  Widespread
               government corruption.

Russia – attempts to attract foreign capital. Fails.
China – attempts to attract foreign capital. Succeeds.

Russia – invades Georgia and alienates foreign countries and foreign investors.
China – does not invade other countries.

Russia – defaults on most of external debt, further alienating foreign investors.
China – increases foreign debt.

Russia – uses exports of natural gas as a political weapon against Ukraine
               and Western Europe.  Alienates potential European investors.
China – does not rely on exports as political weapon.

Russia – little help from Russians in other countries.
China – massive amounts of investment, technology transfer and managerial
              expertise from overseas Chinese, including Taiwan and Hong Kong.

Russia – backward banking system and underdeveloped financial markets.
China – modernizing banking system and financial markets, although much of it
              still under state control.

Russia – economy relies heavily on exporting raw materials and processed
               metals.  “Oil curse.”
China – large net raw material importer.  Relies on exporting manufactured
             goods and development of domestic market.

Russia – allows ruble to float with negative results.
China – fixes value of yuan.  Slight appreciation because of foreign pressure.

Russia – very little importing of foreign technology.
China – large amount of foreign technology imported and diffused throughout
             economy.

Russia – little use of joint ventures to import foreign technology.
China – extensive use of joint ventures to import foreign technology.

Russia – some investment in infrastructure.
China – massive investment in infrastructure.

Russia – emigration to Israel and other industrialized societies.  (One of the two
               founders of Google from Russia.)
China – immigration of overseas Chinese with capital and skills.


PROBLEMS

Russia – serious pollution and environmental degradation problems.
China – serious pollution and environmental degradation problems.

Russia – collapse of social welfare programs.
China – collapse of social welfare programs.

Russia – declining, unhealthy population.  Declining life expectancy.
China – slowly increasing population.  Far below replacement birthrate.
               Rapidly aging population.

Russia – moving away from dependence on raw material exports.
China – possible contradiction between economy and government.






Comments

Post a Comment

Most Popular Posts

Adam Smith's Pin Factory

By
Image
Adam Smith - Our Founding Father ADAM SMITH VISITS A PIN FACTORY   Adam Smith’s description of a pin factory is on the first page of  The Wealth of Nations .  (Chapter 1 – “Of the Division of Labour”)  Drawings of pin factories of this period show workers using hand tools. Smith says the process can be broken down into 18 distinct steps, including packaging the pins. Smith mentions that pin factory workers were poorly paid, despite their high productivity.    Adam Smith says he visited a pin factory employing 10 men who produced 48,000 pins per day.  If each of the ten workers had done all the steps themselves, Smith says each worker could produce only 10 or 20 pins per day.  So the pin factory replaces 2,400 to 4,800 pin makers. The increase in labor productivity (output per person per day) is as high as 50 times that of individual pin makers.     This reduction in unit cost or average cost (AC) and the huge i...
Read more

Bilateral Oligopoly

By
Image
The best movie about the Gunfight at the O.K. Corral is titled My Darling Clementine. A great western - great cast, great photography.  DEFINITION OF A BILATERAL OLIGOPOLY Models of market structure assume that the demand side is represented by a large number of buyers.  The structure of the market, and the assumed market outcomes, depends on the number of suppliers and how they compete.  Suppliers either post one price or exploit their knowledge of buyer categories by using price discrimination.  Despite the comments about the key role of consumers in determining economic performance, consumers are fairly passive when the discussion focuses on imperfectly-competitive industries.  But many markets are not structured this way; the buyers are not passive consumers but large corporations that do not passively accept suppliers’ prices.  Net prices are actively negotiated.  These markets are often bilateral oligopolies. In a bilateral oligo...
Read more

The Stock Market Crash of 1929 and the Beginning of the Great Depression

By
Image
Famous Headline Before You Begin If you don't know the background of this complicated story, you might want to first read a shorter version that introduces some of the key factors explaining the Crash and the Depression. See, Introduction to the Stock Market Crash of 1929 and the Beginning of the Great Depression Before reading this essay, I strongly recommend you see the PBS video on YouTube. Type in Stock Market Crash 1929. Look for US – The Crash of 1929 (PBS), ALLHISTORIES – PLAYLIST.  Documentary broken into 6 parts to show commercials. Or buy the video on Amazon Prime. Great documentary with wonderful photos, videos, and scenes from movies of the 1920s and the crash. Shows what a crazy time it was. The video is also a great introduction to Andrew Ross Sorkin, 1929:  Inside the Greatest Crash in Wall Street History - and How It Shattered a Nation.  This book concentrates on the roles played by a small number of key men; the video also focuses on these me...
Read more

List of Posts By Topic

By
Image
FIND POSTS BY CATEGORY The Beginning of the Industrial Revolution The theme of the following four sections of the blog is that innovation, not price competition, is the basis for understanding economic growth, competition, and analysis. Basic Concepts and Theory Market Behavior and Structure Market Dynamics and Information:  How Markets Work Economic Theory and Markets Corporate Strategies There is beginning a historic change in future populations and their demographics. This will interact with other variables and have a serious, maybe profound, effect on future economic growth. Demographics and Economics China Geopolitics and the Global Economy American Economic History Management The world seems to be in the midst of radical political and social change. Where are we going? Can studying past periods and countries facing disrupting change help us navigate our times? Maybe. History American History World War I:  The Beginning of the 20th Century The Roman Republic and Amer...
Read more

Government Finance 101. Fiscal Policy: Welcome to Alice in Wonderland

By
Image
Secretary of the Treasury PRELIMINARY SUMMARY OF FISCAL YEAR 2025 BUDGET   The Congressional Budget Office (CBO) made their latest projection in January, 2025. The projected deficit in fiscal year 2025 will be around $1.8 trillion, the difference between about $5.2 trillion in revenue and $7.0 trillion in expenses. Interest on the national debt this year will be around $950 billion, over twice the interest expense in the fiscal year 2021 budget and equal to the defense budget. By 2035, the CBO expects the  yearly  budget deficit to increase to $2.7 trillion.   Interest expense this year passed budgeted outlays for the military. It is about equal to Medicare, and also to total non-defense discretionary spending.   Leaving aside Social Security and Medicare, interest expense is  about 20% of total budget outlays. Interest expense is about half the budget deficit.   The $1.8 trillion budget deficit is 6-7% of total GDP, or approximately 10% of consume...
Read more

Explaining Derivatives - An Analogy

By
Image
You go around to farmers with cows. You buy all the cows and pay the farmers a small fee to milk the cows and sell the milk. You pay for the cows with ass(et)-backed securities called MBSs (Milked Bovine Securities) that you tell investors are udderly safe. But some of the cows don't give enough milk (cow flow problems) or give no milk at all. You take some of the asset-backed securities, say they're backed by the subprime cows, and use them as collateral to sell another set of securities called CMOs (Cow Milk Obligations). Then you buy CDSs (Cow Dried-up Swaps) from AIG (Angus Insurance Company) to insure the CMOs when the cows stopped giving milk. If you work it right, you collect more on the CDSs than you pay out to retire the CMOs. The money you get from selling the dead cows go to pay the CLOs (cow leather obligations). You could also sell CDOs (cow dung obligations) that depend on how much cow dung is produced. This is a typical Wall Street product - turning s...
Read more

Josiah Wedgwood, the Wedgwood Pottery Company, and the Beginning of the Industrial Revolution in England

By
Image
Wedgwood Anti-Slavery Cameo A better introduction to the beginning of the Industrial Revolution than Adam Smith is the history of Josiah Wedgwood and the Wedgwood Pottery Company. This is how one company actually ushered in the Industrial Revolution. The revolutionary generation that first adopted steam engines saw the following trends and changes: Manufacturing was being modernized by a small group of entrepreneurs. Much of the new raw material processing and manufacturing was concentrated in a small area in the middle of England, away from London. These modernizing entrepreneurs formed a new economic, intellectual and social network. Modernizing entrepreneurs like Wedgwood tended to be members of Dissenting sects (like Quakers) or Nonconformist churches (not members of the Church of England), Whigs (liberals) in politics, and believers in “progress.” They were optimistic about the future, influenced by the ideas of Hume, Rousseau, Locke and Adam Smith. They believed...
Read more

John von Neumann Sees the Future

By
Image
John von Neumann JOHN VON NEUMANN CREATES THE FUTURE If you want to understand the world we live in, you have to know about the thinking of three men – Alan Turing, Claude Shannon and John von Neumann.   I’ve talked a little about Alan Turing in an earlier essay.   All three men knew each other, discussed their thinking with each other, and promoted each other’s ideas. John von Neumann has been called the smartest individual of the 20 th Century (by his brother-in-law, who won a Nobel Prize in Physics).   A n outline of von Neumann's accomplishments, which you can read about in  Wikipedia, is hard to believe.   He invented game theory, which I discussed in two earlier posts.   He belonged to a group of mathematicians who invented new statistical techniques at Los Alamos that made the atomic bomb possible. He invented game theory. In 1944, he wrote a memo that outlined the structure of the modern computer.   He then managed the design a...
Read more

The Roman Republic Commits Suicide: A Cautionary Tale for America

By
Image
Roman Legion Why Study Rome? Americans have focused on comparisons between Rome and America twice in American history.  The first time was during the period from before the Revolution to after the ratification of the Constitution and Bill of Rights, when the founding fathers and others looked to the Roman Republic for ideas and inspiration on how to structure the new government. After the American Revolution, the founding fathers, having read the Roman authors detailing the collapse of the Roman republic, worried about internal threats to the survival of their new republic.   The second time was when the United States became a superpower, especially after WWII, and then again after the collapse of the Soviet Union in 1991. Commentators compared America to the Roman Empire at the height of its power. There was some discussion about how America became a permanent warfare state and how it affected domestic democracy and civil society. ...
Read more

The English East India Company (EIC): Trade with Asia

By
Image
The Mughal emperor Shah Alam hands a scroll to Robert Clive, the governor of Bengal, which transferred tax collecting rights in Bengal, Bihar and Orissa to the East India Company.  Illustration: Benjamin West (1738–1820)/British Library INTRODUCTION   The English East India Company (EIC) was an innovative new type of corporation. It is a model for the modern limited-liability, stockholder-funded modern corporation. The EIC also illustrates that the prototype of the modern multinational corporation was created to develop global trade.   HISTORIC BACKGROUND   The creation of the English East India Company (EIC) and its Dutch equivalent (the VOC) were part of the 400-year expansion of European power, trade, and influence. Much  of the rest of the world became colonies, part of imperial empires. By 1600, both England and Holland had a wealthy merchant and shipping class, bankers, substantial liquid capital (wealth) not tied up in land, and risk-takers. These categor...
Read more